New Zealand seeks to strengthen ETS through second system review

In late November 2015, the New Zealand Government began the second review of their emissions trading scheme (NZ ETS). A discussion document for public consultation, released by the Ministry for the Environment, outlines the key issues that will be considered. The final date for public submissions is April 2016, and proposals for policy reform will likely be developed by the end of that year.

In the first stage of the review, the scheme’s two transitional measures will be assessed. Initially introduced in 2009 to ease the impact of the ETS on covered entities, they were extended indefinitely after the last review in 2011. Firstly, reform of the one-for-two surrender obligation measure will be debated, which currently allows entities in the energy, industrial and waste sectors to surrender one unit for every two tons of emissions released. Secondly, the fixed price ceiling of NZD 25 (EUR 15.50) will also be discussed.

The review will also look at operational and technical improvements, and assess the effectiveness of the NZ ETS in reaching New Zealand’s 2020 and 2030 emissions targets. Leakage provisions, specifically free allocation for emissions intensive and trade exposed (EITE) activities, are unlikely to change until at least 2020. Auctioning is also unlikely to be introduced before 2020.

Originally, the government intended to gradually phase in all sectors into its ETS, however, surrender obligations for the agriculture sector have been ruled out under this review. Although agricultural emissions make up nearly half of New Zealand’s emissions profile, the government has excluded the sector from its ETS, stating that there are still only limited technological options to reduce emissions without decreasing production.

In general, the review is also expected to give impetus to forestry under the NZ ETS, and explore ways for this sector to increasingly generate removal units.